By Channel Middle East
Growing interest in cloud services across the region is helping to highlight considerable market potential for solution providers who want to get involved in delivering flexible offerings that also address some searching customer questions.
The security and reliability of cloud services remain key concerns for organisations poised to adopt them but held back by doubts about the benefits of running core business systems outside the corporate IT infrastructure. And the sheer range of business models made possible by cloud services means potential providers are having to provide new levels of consultancy to strengthen their sales case.
These complications aside, there is clearly a major opportunity to profit from a burgeoning market. According to Frost & Sullivan, the cloud services market in the GCC is estimated to reach $668 million by 2020, growing at a CAGR of 32.8%. Haritha Ramachandran, industry manager, Information and Communication Technologies Practice, said the market is still in a nascent phase.
“Security concerns are driving local companies to choose the private cloud model over the public cloud,” said Ramachandran. “Cloud adoption rates have been on the higher side in countries like UAE . Many businesses have already been through the first stage of cloud adoption, namely, virtualisation, which brings benefits such as virtualised infrastructure and applications, diminished down time, and operational expenses automation.
“Currently, local telcos are the main cloud service providers and early adopters of technology; telcos will use their existing infrastructure comprising data centres with MPLS to layer their operation and offer additional services via the cloud. Cloud services are mainly used for web services (eg mail on MS office 365 and web hosting) with SaaS as the most popular type of cloud service regionally. The education sector with research in technology and science is one of the top cloud computing users in the GCC.”
The challenge for solution providers looking to break in to cloud services is as much to do with their own current business models as it is about customer demands. Altaf Alimohamed, managing director at hosted IT services company Media Solutions, said the necessary shift from the quick returns of hardware/software sales to the longer game of ongoing service provision raises the key issue of profitability. Providers must commit to continuous upgrades and service extension, and offer pay-as-you-go options and high performance guarantees – which require investment without the promise of high margins in return.
“A scaled cloud operation should offer a more cost-effective solution for businesses, and if these criteria are met, this results in a much lower invoice amount than an on-premises solution,” said Alimohamed.
“Therefore, the net margins are slimmer – a big departure from the current business models, and one that brings both positives and negatives to each party – the solution provider and the client.
“Media Solutions has been offering cloud services in the MENA region since 2007. Indeed, we were perhaps the ‘first-to-market’ and certainly one of the very early adopters, at the birth of the IT shift.
In the early days, we soon discovered that it was not viable for us build a cost-effective infrastructure locally, but we were convinced that cloud was the way to go, and placed a strategic focus on mastering cloud solutions.
“We partnered with services provider Cobweb, which had already invested Capex in building out its service, immediately associating Media Solutions with leading partners in order to provide a high quality, local cloud-based IT service to the UAE and greater region.”
Handling the transition to these new business models is probably the greatest challenge facing aspiring cloud services players. The mix of public, private and hybrid solutions offers infinite possibility for service portfolios, and getting it right will depend on a number of variable factors.
“It comes down to the solution provider’s skills as well as the existing customer/market base,” said Nehul Goradia, VP – channel and alliances at distributor Optimus. If their customers are large enterprises, then enabling a hybrid or private solution may make more sense, but if their customers are SMBs, then enabling a public cloud with defined SaaS offerings maybe more profitable.”
Arthur Dell, director, technology and service, MEA at Citrix, said the shift to recurring monthly revenue model means potential cloud service providers will follow the example of companies like Media Solutions – joining forces with established cloud providers and software vendors. Their own contribution will be adding value through their ability to customise services for specific vertical markets.
“Following that new business model, it’s important for solutions providers to choose a cloud provider that offers the type of infrastructure and security features that appeal to their target vertical market, while giving them room to customise the workspaces, applications and features that deliver business-ready value their customers need – and are willing to pay a premium to obtain,” said Dell.
Making the right partner choices throws another complication into the mix. Potential players might feel safer hitching their wagon to a familiar star, but there is also a new generation of incoming cloud specialists who could score points for versatility and innovation. At systems integrator Alpha Data, services manager Farid Abou El-Fetouh, said it is a difficult decision to make.
“Popular partners are backed by the concept that ‘history tends to repeat itself’,” he said. “They may have proven to be excellent market performers or are supported by major investors. They may also have the ability to constantly come up with new offerings that either enhance or complement previously successful offerings.
“Startups, on the other hand, normally offer lower costs compared to the big players. They may have also learned from past industry experiences and trends and come up with better strategies for achieving optimum performance and addressing major issues. Given the constant and rapid evolution of technology, startups may have more time to focus on R&D, innovation, and service development and expansion and eventually become major cloud service players themselves.
“There are, of course, a number of risks involved in partnering with startups. For one, a relatively unknown supplier might not be able to stay in the market long enough to establish a solid reputation. It might also have poor customer relationships due to its inability sustain high performance levels. Adaptability is also a major concern, as a startup might not have enough experience to customise solutions based on customer needs. Finally, the potential partner might not have the proper technology and qualified team.”
In the end, a successful business model must be based on meeting the specific requirements of individual customers, regardless of the service combination and public/private delivery model.
Emir Susic, senior director, Avaya Professional Services, Global Growth Markets, said the right solution is based solely on the outcomes desired by customers and what is the right cloud model for their business needs and their priorities.
“That, in our perspective is the way to stay profitable for solution providers. If you go to a customer and sell a private cloud model that does not generate measurable business results, the customer is not happy and will stop working with you. If you however, partner with the customer and build a value proposition that delivers measurable, real results, you have an engaged customer for life. That’s the approach that we follow and the one that we’d like to see our partners follow.”